ARTICLE
21 July 2025

Venture Capital Investment Funds: Investment Criteria And Legal Limitations

Sadık & Çapan

Contributor

Sadık & Çapan is an independent and a boutique law firm based in Istanbul, Turkey. With its experienced team, Sadık & Çapan provides legal advisory services to local and foreign corporations and banks, public companies, investment funds, brokerage firms, asset management companies, venture capital companies, individuals and start-ups, in the fields of banking and finance, securities and capital markets, corporate, commercial and employment laws. Our firm is highly qualified and skilled in advising public companies in their daily operations particularly about their regulatory filings, corporate governance activities, reporting and disclosure requirements and various securities offerings including IPOs, cross-border and domestic debt and equity offerings (DCM and ECM deals) involving Reg S/144A issuances, Sukuk transactions and also, highly specialized in different types of loan and security transactions, alternative financing models and financial and regulatory compliance matters.
Venture Capital Investment Funds are non-incorporated assets established by portfolio management companies and managed on behalf of investors based on the principles of fiduciary ownership, through funds collected from qualified investors ...
Turkey Corporate/Commercial Law

Venture Capital Investment Funds (the "VCIFs") are non-incorporated assets established by portfolio management companies and managed on behalf of investors based on the principles of fiduciary ownership, through funds collected from qualified investors in exchange for participation shares or equity interests. VCIFs are regulated under the Capital Markets Law No. 6362 and the Communiqué on the Principles of Venture Capital Investment Funds (III- 52.4) (the "VCIF Communiqué").

Definition of Venture Company

According to the VCIF Communiqué, venture companies are defined as companies with the potential to grow and generate added value, offering high return expectations through the improvement of their operational, production or sales performance and capable of achieving their business objectives with financial and/or institutional support.

With the amendments introduced to VCIF Communiqué on 21 September 2024, the investment thresholds regarding venture companies have been revised. In this context:

  • For foreign venture companies, at least 51% of their total assets must consist of subsidiaries or affiliates established in Türkiye, as per their most recent annual or closest financial statements. This threshold was previously 80%.
  • Companies whose real estate and/or real estate-based assets constitute at least 40% of their total assets or whose principal activity is construction contracting are no longer considered venture companies.

VCIF Investment

VCIFs may make the following investments as venture capital investments:

  • They may directly acquire equity in venture companies by signing a "Shareholders Agreement" with the current shareholders controlling the venture company.
  • They may indirectly acquire equity in venture companies through special purpose vehicles (the "SPVs") established in Türkiye or abroad specifically to invest in such companies. These investments may be realized through capital injection or share transfer, and VCIFs may also act as founders of the venture company via such SPVs.
  • They may invest in collective investment institutions established abroad solely for investing in venture companies. In such cases, the investment risk should be limited to the principal amount allocated, and the purpose of investing exclusively in venture companies should be ensured.
  • They may invest in debt instruments and lease certificates issued by venture companies whose shares are not traded on the stock exchange. However, investments in debt instruments and lease certificates issued by venture companies whose shares are traded on the stock exchange are not considered venture capital investments.
  • They may invest in capital market instruments issued by venture capital investment trusts and participation shares of other VCIFs.
  • They may invest in the non-public shares of publicly held venture companies.
  • They may provide hybrid financing, combining debt and equity features, to non-public venture companies. In practice, this is commonly executed through convertible note agreements.
  • They may invest in asset-backed securities (Sukuk) issued on the basis of interest-free finance principles and granted or to be granted to venture companies.
  • They may invest in debt instruments and lease certificates of SPVs and collective investment institutions established abroad, provided they fall within the scope of the VCIF Communiqué.
  • Receivables or advances arising from forward purchase or sale of venture company shares, as well as premiums for option agreements granting the right to purchase such shares, are considered venture capital investments.
  • Investments made by VCIFs in foreign companies may be deemed venture capital investments based on specific shareholding thresholds.
  • Investments in foreign-domiciled companies are considered venture capital investments based on the percentage of participation shares held by foreign individuals or legal entities.
  • Investments made under agreements that grant or will grant future equity rights in venture companies may qualify as venture capital investments, provided that relevant legal requirements are met and other applicable legislation is not infringed.

Investment Restrictions on VCIFs

Pursuant to the VCIF Communiqué:

  • At least 80% of the total value of a VCIF must consist of one or more venture capital investments. This threshold may be reduced to 51% if more than 10% of the VCIF's total investments in a fiscal period are made in SMEs.
  • Investments made in other VCIFs may not exceed 25% of the investing VCIF's total value. This limitation does not apply to funds titled as "fund of funds".
  • Investments in the non-public shares of publicly held venture companies must not exceed 20% of the VCIF's total value.
  • Investments in companies controlled by participation shareholders of the VCIF or their related parties must not exceed 20% of the VCIF's total value.

Prohibited Investments for VCIFs

According to the VCIF Communiqué:

  • VCIFs are prohibited from short-selling capital market instruments, conducting margin transactions or borrowing capital market instruments.
  • VCIFs may engage in derivative transactions only for hedging purposes and provided that such transactions do not exceed 20% of the total portfolio value.

Conclusion

VCIFs are significant capital market instruments that facilitate access to financing for early-stage and innovative ventures, thereby supporting the entrepreneurship ecosystem. The recent amendments to the VCIF Communiqué enhance the efficiency of cross-border investments while promoting local investments that contribute to the Turkish economy. In this context, strict adherence to the investment limitations and eligibility criteria remains essential for ensuring the legal and sustainable operation of VCIFs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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